Apurba Pokharel                                                              Krishna Dahal
apurba@redchillies.org                                                   krishna@redchillies.org 


I. Introduction 

Web3 and tokens have come a long way from when the Bitcoin white paper was first released. The decentralized design of blockchain networks makes it such that the wallets are only accessible to people who know the seed phrase of the wallet. If this phrase is lost then there is no way to obtain the assets. This has led to a lot of tokens being stored in inaccessible wallets either because the phrase has been lost or the one with the phrase passed away. Untimely deaths and a lack of a proper decentralized way to pass on tokens may cause a lot of tokens to be lost forever and will probably damage the tokennomics of these tokens. This paper will further elucidate these problems and will discuss ways in which the web3 community may solve this problem.


Loss of access to token wallets is not an uncommon phenomenon. Let us first take a look at some of the major losses to access in the web3 space. None of us can know for sure if a wallet access is lost, however, we can predict it based on account inactivity or dormancy. Firstly, let us take a look at the dormant BTC wallets.

A. Bitcoin

1. When Bitcoin was first introduced it was only the people involved in tech that mined or owned Bitcoin. The vast majority of the public were either unaware or just didn’t care for something that took nearly two years to be equivalent to 1 USD [1].

2. As a result of which people that mined or owned Bitcoin during its inchoate years probably ended up losing the wallet phrase because no one could predict it to have the valuation, it now has[2]. Such phenomenon happened ubiquitously as a result of which, today there exist sites that list dormant Bitcoin accounts [3].

3. Nearly 420000 BTC (nearly 2% of 21 million) are held in the dormant accounts. This is equivalent to 12151986000 USD at 2022/05/27 17:03 pm, 1 BTC = 28,933.30 USD

4. This article lists the people that have lost their Bitcoin assets [4].

B. Generation 2 blockchain networks

The launch of Ethereum nearly five years after the launch of Bitcoin, gave rise to the new programmable generation of blockchain networks.

1. When Ethereum launched on July 30. 2015, BTC price was 287 USD.

2. The crypto space was still exclusive to tech-savvy people and so these people were then aware of the potential of assets loss and so were much careful with backing up the wallet seed phrase.

3. So, the possibility of asset loss was greatly reduced.

III. Work done/ literature review 

Nearly 13 years since the start of this new decentralized age, that has generated an all-time high of 2.9 trillion[5] USD in November 2021. Many holders of these assets have and will pass away unexpectedly leaving no way to recover their assets. This in the long run will be a major problem as more and more assets will be locked away in wallets, excess of which is lost forever. This paper purposes simple solutions that may help mitigate this problem. But first, let us look at all the work that has been done to alleviate this problem.

Cryptocurrency is considered to be a probate asset [6]. In translation, probate assets have to go through the law before it can be transferred to your beneficiaries, in the event of your death. However, this is only possible if the assets are named in a will and access to it is provided/ made available.

Also, note that even the most popular crypto exchanges don’t currently support any type of beneficiary designation for crypto assets — such as transfer on death (TOD) or payable on death (POD) accounts — which are common ways to keep traditional assets out of probate [6].

A. Current Solutions

1. Bitcoin time lock contract/script

BTC has something called a time lock contract/script that allows transfer and access to the BTCs after the allocated time has passed. However, there is no revert option once the time-locked contract has been set. This could be one way to transfer BTC assets but let’s try and come up with more solutions.

2. Naming beneficiaries in someone’s will or estate plans

Beneficiaries are the one’s who will get your assets after you pass away. This process also requires individual or organization to be appointed as moderators, someone who will ensure the passing of these assets.

3. Establishing trust (revocable and irrevocable)

Depending on the net worth of the assets one might want to consider revocable (for low-net-worth assets) and irrevocable trust (for high-net-worth assets). Such trust will then allow TOD processes to take place.

Both of these solutions will need a list of all crypto assets as well as ways to recover them, the wallet phrase, the private keys and everything in between.

If the owner’s crypto is stored in a custodial account on a crypto exchange like Coinbase, Gemini or eToro, moderators or beneficiaries can contact these exchanges directly to facilitate the transfer of your assets[6]. The owner’s will mentioning you, owner’s death certificate, your identification, are some of the things that must be provided to these exchanges before they transfer the assets over to the beneficiaries.

B. Problems with these solutions

1. There is just a single point of failure

Moderators are the people or organization that facilities transfer of assets to beneficiaries upon death. They will have the wallet seed phrase with them and in the worst-case scenario will be able to steal the assets for themselves. Even though this might rarely be the case but there is always a chance that it may happen. Crypto wallet hacks are a very common phenomenon can the moderators can blame the loss of assets on hacking and may even be able to get away with it, as the address of the receiver does not store the receiver’s identification.

2. Negates the purpose of crypto tokens:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”, Satoshi Nakamoto [7]. This is what is written in the abstract of Bitcoin’s whitepaper. So, depending on financial institutions fully to transfer assets designed to be independent of them negates their purpose.

IV. Purposed solution 

The purposed solutions cover the transfer of fungible, non-fungible as well as native tokens.

A. Transfer of fungible and non-fungible tokens

1. A TOD (transfer on death) contract will get approval  for the tokens of a user to transfer assets on behalf of the user.

2. In the contract, the user will nominate his beneficiaries and define the time to pass before transfer can take place (TTP).

The beneficiaries can be nominated in order, primary, secondary or tertiary (in this case there will exist a hierarchy of order between the beneficiaries).

These nominations can be changed anytime by the user.

3. In the event of the users’ death, any one of the beneficiaries can invoke a function called getFunds.

4. If the user is still alive and well, he can invoke a rejectFunds functions to stop the process within the specified time frame, TTP.

5. In a case where the secondary beneficiaries invoke the getFunds call, the primary can revoke that call by invoking his own call.

6. In the event where primary does not invoke a call then secondary will be eligible to get all the funds, as per the hierarchy of beneficiaries.

7. Once the time period has passed, the TTP and no revocation have occurred then TOD contract will transfer funds from the user to the beneficiary, the one who invoked the call.

This scenario defines one of the simplest ways the transfer of such assets can be handled, in a fully decentralized way.

We can even allow the users themselves to invoke a function that allows the beneficiaries to invoke getFunds after a specified TTP. And like above the user can revoke this within the TTP.

This method still has one major flaw. There is no way to prove that the user indeed has passed away. The method above relies on the fact that an active user will and can revoke calls to getFunds but what if the user is still alive but was unaware of this and their funds are transferred while they are still alive.

If there is no revocation from the user within the TTP then the user is considered to have passed away. Even though this is quite reasonable, considering the method above is fully decentralized but still raises the question can there be some kind of proof that can be generated on chain.

Despite the web3 community’s demand for decentralization we live in a highly centralized world and the centralization is deep rooted into everything. This centralization can be leveraged to get proofs on our decentralized networks. So, the answer is yes.

B. Sovrin Project

The Sovrin foundation is building a decentralized way of managing identities on the internet. The paragraph below will summarize the working of Sovrin, and after that we shall discuss how we can use this to solve our problem.

Sovrin project built on top of Hyperledger Indy is a distributed ledger that provides ways of creating digital identities rooted on the blockchain. DID or Decentralized Identifiers or IDs are the hexadecimal value name given to each actor on the ledger. These DID are used for identification. Sovrin also has a built-in trust model with Trustees, Trust Anchors and Stewards.

Indy is designed to be operated such that everyone can see the contents of the blockchain (public), but only pre-approved participants, known as stewards, are permitted to participate in the validation process (permissioned). Stewards are the only one able to write data onto the ledger maintained by Sovrin. To become a steward, there is a proper onboarding process defined by Sovrin.

The trustee’s role is to become a guardian for other identity holders in case of recovering identities. e.g User A can nominate User B to be his trustee so that in case of User A lost his mobile, identity can be still recovered with the help of User B. User B can be banks or any trusted service provider or Individuals.

Trust anchors are middlemen between users and stewards onboarded by approvals of Stewards. They will forward users request to stewards.

C. How is this useful?

Let us consider that along with many other stewards, the government of the country is also the steward, and the government body that issues death certificates is a trust anchor. Such institution provides a death certificate to us in the real world but what if it also provided the death credential of a person with their various blockchain wallets (like wallet addresses of BTC, ETH and so on) as mentioned in their wills and or legal document. This credential could be issued to his lawyer or next of kin or can just be anchored onto the Sovrin ledger without an owner for all to see. This credential would sever as a proof and various TOD process can use this as proof.

D. Transfer of native tokens

The method for transferring fungible and non-fungible tokens works without the need for the wallet seed phrase because of approvals and transfer. However, native tokens like BTC, ETH, ADA, and more, don’t have approval methods built in. For the rest of the tokens, the only way to transfer these is via the transfer process that can only be done by someone that has the wallet access. The seed phrases can be stored and or backed up in different ways. However, at the end some kind of legal document that grants access to these phrases or the sharing of these phrases with the beneficiaries before time is necessary. However, there is a way for some tokens depending upon the platform to escape the seed phrase sharing.

Ethereum has the concept of wrapped ether, which is basically an erc20 token that is 1:1 equivalent to ether. So, users can convert their ether to wrapper ether and the process above can be done to transfer these tokens. Once the wrapped ether has been transferred it can be swapped back to native ether. This concept of wrapping native tokens is common and can be seen in networks like Elrond, Binance, and more.

Sadly, Bitcoin does not support wrapped token in its network like some of the blockchain platforms does. However, in all of the other platforms, there is a wrapped Bitcoin token. WBTC is an ERC-20 token in Ethereum and users can swap BTC on the Bitcoin network for WBTC on the Ethereum network. So, once an ERC-20 equivalent of BTC is obtained then it can be transferred via the TOD contract. Once the beneficiaries have WBTC they can exchange it back to BTC in the Bitcoin network. Despite, the fact that this method will allow a fully decentralized way to transfer assets on death, there is additional gas fees involved. Similarly, this method can be used even for assets that don’t have their wrapped equivalent tokens in the same network to facilitate the transfer.

Extra gas is involved in the following transaction: Gas to convert BTC from Bitcoin network to WBTC in another network (Ethereum or BNB), depending upon the platform the gas will be different and Transfer WBTC back to BTC on the Bitcoin network.

V. Conclusion 

This paper discussed the current ways web3 assets can be transferred, and highlights the major problems with these solutions. The paper then elucidated a new way this problem can be tackled, and in a fully decentralized way. The purposed solution, however, has a major flaw, the true verification if the asset holder had indeed passed away. To solve this problem, on-chain proof and credentials can be issued through the use of Hyperledger Indy. Lastly, cross chain transfer of assets was purposed as a way to facilitate the transfer of assets from the networks that do not have a fungible token for their native token.


Would like to thank Bibek Koirala and Asmit Bhantana for meaningful discussions and review on this topic.


1.  https://www.sofi.com/learn/content/bitcoin-price-history/

2. https://www.independent.co.uk/tech/bitcoin-satoshi-nakamoto-wallet-b2045846.html

3. https://bitinfocharts.com/top-100-dormant_9y-bitcoin-addresses.html

4. https://www.cryptovantage.com/news/the-top-5-biggest-lost-bitcoin-fortunes-that-we-know-about/#:~:text=How%20Do%20Bitcoin%20Wallets%20Get,restoring%20lost%20passwords%20to%20wallets.

5. https://www.reuters.com/business/finance/crypto-assets-shed-800-bln-market-value-month-2022-05-10/\

6. https://www.kiplinger.com/investing/cryptocurrency/604424/what-happens-to-your-crypto-assets-when-you-die#:~:text=Like%20your%20real%20estate%20property,your%20beneficiaries%20after%20you%20die.

7. https://bitcoin.org/bitcoin.pdf

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